Unpacked Webinar: Preparing for Economic Uncertainty

00:00:02:03 – 00:00:29:11
Unknown
Welcome to today’s webinar. My name is Cameron Barragan and I’m the VP of Commercial Strategy here at Storable. I’ll be your host for today’s webinar. And today I’m going to be joined by storable founder and CEO Chuck Gordon. In today’s session, he’ll be touching on how economic factors are impacting some of the key metrics in our industry and what steps operators should be taking or at least be considering to help fortify their business against emerging headwinds.

00:00:29:23 – 00:00:52:21
Unknown
And then one last thing before we really get going today, and that’s you may have noticed that we’ve on this webinar and it’s recent communications from Storable. We’ve been using the phrase unpacked and this is a new concept for us. And it’s not just a clever name or clever branding. It actually represents a shift in approach in terms of how we share information to help operators in our industry.

00:00:53:12 – 00:01:16:10
Unknown
Over the last several months, our team has reimagined how we can provide the best and most useful content to help your business thrive. And through that process, we’ve built an ongoing program designed to share valuable market news and most importantly, insights across a number of communication channels to really try to serve you better. We call this new approach storable unpacked.

00:01:16:10 – 00:01:45:05
Unknown
And so you’re going to see more of this in the coming weeks and months. And we realize there are a number of different types of insights that operators need to continually optimize their business. And as a result, we’re breaking our content approach into three categories. The first category is market forces impacting storage. And here we’re really going to be focusing on how the broader economy and consumer trends will impact day to day operations both today and in the future to help you get ahead of what’s coming down the road.

00:01:45:18 – 00:02:16:21
Unknown
The second is industry trends and performance data. We’ll be talking a lot about this today when Chuck gets into what we’re seeing in terms of indicators of where our our industry is going. That’s storage, specific information and insights and data. And then the last area is around best practices and technology innovations. So as the leader in technology for the storage industry, we’ll also be sharing more about the practices and tools that operators can use to enhance operational and financial performance in any market conditions.

00:02:16:21 – 00:02:41:05
Unknown
And so that’s going to be a big focus for us. We also realize that different people consume information in different ways. So we’re taking steps to ensure that we’re making this information available across a number of different media, a number of different channels. And so those those channels include our blog, which is housed on Storable Dot. And this is where you’re going to find in-depth coverage of broad news from across the industry.

00:02:41:13 – 00:03:07:03
Unknown
We cover everything from M&A to market forces to Q&A with with operators where you can learn a lot about how other operators are doing things and just generally where the market’s going. Also, our webinars like the one that are going to be walking through today where we do deep dives and specific research and pull together narratives and information that can be helpful as you think about how you’re running your business.

00:03:07:23 – 00:03:30:19
Unknown
And then finally, the newsletter. Last month, we introduced an entirely new newsletter that that curates the best and most valuable information from across all of the research, all the different work that we do, and then share it and share that with our customer base and with anyone that signs up for it, actually. So you get that on a monthly basis and it’s kind of a digest that pulls a lot of different things together.

00:03:30:19 – 00:03:50:11
Unknown
So you can see everything in one place. So our unpacked newsletter is designed to consolidate a number of those different sources and tools all in one place so that you can continually kept in the know on all things storage if you haven’t already done so. I strongly recommend that you sign up for this. You can do so by clicking on the sign up button in the follow up email.

00:03:50:11 – 00:04:07:04
Unknown
It’s going to come after the webinar. This is where you get the recording of everything that we’re going to go through. So keep an eye out for that. So as you can see, we’re working hard to ensure that sort of unpacked is the most comprehensive resource to help you and your team stay ahead of the change in the market.

00:04:07:12 – 00:04:28:22
Unknown
And today Marks is kind of the starting point for that. Over the coming months, you’ll see an evolution in terms of the content we publish. And we may also begin to introduce new resources and tools in the year ahead. So stay tuned for more on that front and we’re excited to bring more to you. Now let’s go ahead and dove into the topic today.

00:04:29:20 – 00:04:52:18
Unknown
So, I mean, it seems like no matter where you look, people are talking about the economy. For much of the of this year, we’ve seen concerning signs from the stock market. It’s hard to ignore. And we’ve also seen a lot of concern around inflation. Generally, though, consumers have not been impacted a whole lot to date. And as a result, our industry has seen little in the way of really negative impact.

00:04:53:10 – 00:05:19:23
Unknown
But the question the question is really cannot continue. And today, we’ll be diving deeper to highlight the forces that we see either at work in the economy, how those forces are impacting the storage industry, and then what operators should be thinking about to fortify their businesses against any challenges that could emerge in the months ahead. So without further ado, I’d like to introduce Store Walls founder and CEO Chuck Gordon, who will be walking through the rest of today’s session.

00:05:20:17 – 00:05:46:07
Unknown
So with that, Chuck, I’ll let you take it away. Awesome. Thanks. Cameron, can you hear me? I can’t. Appreciate it. All right, everyone. Glad to be here today. Thank you for joining. My name is Chuck Gordon and I’m the CEO of Storable. As Cameron mentioned, our team has spent a huge amount of time tapping into economic and industry data to understand what’s happening today and where we’re going tomorrow.

00:05:46:17 – 00:06:07:20
Unknown
So I’m looking forward to sharing some of that with you today. Specifically, I’d like to spend our time diving into the factors that I think will influence and even shape the trajectory of our industry versus the macro economic environment. Here, I’m going to cover the challenging or changing, I should say, market conditions that set the context for performance of our industry overall.

00:06:08:13 – 00:06:31:18
Unknown
And then second is going to be storage industry trends, where I’ll go through the how the economic environment is impacting key performance metrics across our industry. And then finally, I’ll go into some practical takeaways, which is what all of this means for operations like yours. Okay. So up first is the macroeconomic environment. Let’s talk about the R word, recession.

00:06:32:20 – 00:06:57:12
Unknown
No, the goalposts have recently changed. We believe it’s still useful to define a recession as two consecutive quarters with negative economic growth. And by that definition, we have officially moved into a recessionary environment. There are certain economic indicators that historically have been linked to recessions. And so we’re seeing some of those this time around, too. First is the inverted yield curve.

00:06:57:19 – 00:07:22:07
Unknown
This is one of the most common predictors of a recession, and it emerged about seven months ago. Next is hyper inflation. Inflation has been absolutely rampant, and we have not yet seen any proof of an easing. But in an attempt to combat inflation, the Fed has raised interest rates by increments we have not seen in more than 40 years, and they’ve clearly stated that they’re going to keep doing that until inflation gets a check.

00:07:23:03 – 00:07:45:02
Unknown
And most recently, we’ve also seen the stock market suffer as basically all three indexes have declined by approximately 10% over the last four weeks. Pretty crazy. These are all things that are typically tied to recessions, though this recession is a bit different. There’s quite a few trends that we are that we’re seeing that are not typically linked to recessions.

00:07:45:12 – 00:08:16:11
Unknown
And the first is around employment. The U.S. unemployment rate hit a 50 year low in July, about 3.5%. And there’s currently twice as many jobs open as there are unemployed people. This phenomenon is keeping the cost of labor relatively high. Next is supply chain issues. Pandemic related production delays and backlogs, coupled with labor shortages, have caused the supply chain issue to persist longer than anticipated, which has kept demand levels well above that of supply in most instances.

00:08:17:08 – 00:08:52:18
Unknown
And then finally, there have been some interesting trends within consumer spending. The two factors above, combined with high discretionary consumer income reserves from the pandemic, have led to unexpectedly high consumer spending trends, with figures at plus 10% year over year in July. Though it does look like that is potentially starting to change pretty quickly. The trends I just outlined are not usually consistent with a recessionary environment, but as you all know, we’ve been living through some unusual times, and the unpredictable nature of the last two and a half years has changed consumer and investor behavior and even policy.

00:08:53:02 – 00:09:22:10
Unknown
Such that we really think we’re navigating uncharted waters yet again here. That said, there’s a couple of signals that give us a glimpse into what’s next. First is earnings. Wages are actually declining meaningfully when adjusted for inflation, which means that buying power for consumers is going to slowly erode over the coming months. With less buying power, consumers who have a surplus of discretionary dollars will likely use most of that up in the not too distant future.

00:09:23:10 – 00:09:44:13
Unknown
And now the Fed has actually come out and said that they are targeting a certain unemployment rate, which is more than 70 basis points higher than our current position, which means they’re intentionally trying to force the economy to shed more than 1.2 million jobs. That is another pretty wild fact as consumer resources are depleted and pent up demand dissipates.

00:09:44:19 – 00:10:10:03
Unknown
It’s expected that the trends that we’ve recently seen with supply and demand will normalize or potentially go in the other direction altogether. And so we expect on a net basis here that consumers are going to start to feel the pinch of the recession very soon if it isn’t already happening. It does appear that the lending and investment side of the economy is a bit ahead of the consumer side, as we’ve already seen some big changes on Wall Street and with lending.

00:10:10:20 – 00:10:37:22
Unknown
Obviously, this affects self-storage since we’re such a capital intensive industry and there’s really two major trends we’ve seen. The first is that the average cost of capital has already gone up by 250 basis points and will be going higher, according to the Fed. And the second is the tightening of the credit market. According to recent surveys, one in four banks have indicated that they will be tightening standards for commercial and industrial loans.

00:10:38:09 – 00:11:05:03
Unknown
Let’s talk about the publicly traded storage companies for a minute. Prior to this year, there was a lot of seemingly irrational optimism in the stock market, but that has melted away pretty quickly in the last couple of quarters. And as the stock market has fallen significantly, investor confidence in general has taken a substantial hit and the result of that is even companies that have strong fundamentals, like storage rates, have seen significant declines in their stock prices.

00:11:06:01 – 00:11:29:02
Unknown
The chart on the left here shows how storage stock prices have declined meaningfully over the last few quarters. And up until these recent market declines in the last month, rates have actually recovered a lot of their losses from Q2. However, the last four weeks have seen that trend reversed. And as we speak today, the average read stock price is sitting about 30% lower than their Q1 highs.

00:11:29:18 – 00:11:51:06
Unknown
That’s a big deal. On the right, you can see the difference in FFO guidance from Q2 to Q3 of this year from the storage rates. What you’ll notice, though, is that these numbers are still very healthy and they’re actually up from Q2 to Q3. So the natural conclusion is that the storage reads stock prices are simply a victim of the macro environment because honestly, they’ve been doing really well.

00:11:52:01 – 00:12:12:10
Unknown
And in past uncertain times, investors, investors have fled to safety, which basically means they look for the safest companies to bet on. And I’m pretty sure storage is going to fall into that category. So there’s likely future above average upside in our sector, even if we do have some headwinds in front of us, which I definitely think that we do, we’ll get into that soon.

00:12:12:13 – 00:12:44:13
Unknown
Speaking of that, I’m now going to shift into some data that’s a little bit closer to home. So let’s dove into storage industry specific data. Before I dove in, though, I did want to call out that all of this data is 100% anonymized and aggregated. We take our customer data, privacy and security extremely seriously here at Storable. Given the economic headwinds that are coming though, we felt that it was important to expose some of these high level trends we’re seeing to help operators like you navigate the months and years ahead.

00:12:44:21 – 00:13:09:21
Unknown
All right, first chart, this one shows the ratio of move ins to move outs. So the Y axis, is that ratio anything over 100% means that there are more move ins than move outs. And anything under 100% means that there are more move outs than movements. So you can see after two years of almost exclusively higher than 100% ratios, August of this year dipped into negative territory.

00:13:10:03 – 00:13:38:18
Unknown
And what looks like a trend we haven’t seen since 2019. In August, movements were down 8% year over year and move outs were up 6% year over year. I also think it’s important to note that the tenant use case mix is likely to change meaningfully in the context of this trend. For example, the proportion of tenants who use storage for fun or leisure equipment will likely decline, and the proportion of tenants who need storage as a result of home downsizing will likely increase.

00:13:39:07 – 00:14:09:09
Unknown
And this is important because this change in use case can have implications on price sensitivity. This slide shows the overall average occupancy of all facilities using a storable software product from 2019 to 2022. In August, we saw our first signs of occupancy declining during the busy season since 2019. This year, occupancy declined by 0.82% from July August, compared to an 8.11% increase last year.

00:14:09:17 – 00:14:38:21
Unknown
Now, .72 percent increase in 2020 in that same period. So clearly we’re seeing a change here. We do not necessarily find this trend alarming. However, it is a signal of things to come. In this next slide shows occupancy by region. So what you can see here is that all four regions declined in the month of August with the mountain and west regions declining significantly more sharply than the east and west, east and Midwest regions.

00:14:39:07 – 00:15:08:04
Unknown
But in all cases, the story is the same, which is which is that occupancy is down in August for the first time since 2019. Obviously, we’re not the only ones noticing these trends because operators have begun lowering their prices in response. In August, we saw rates decline for the first time during that month, again since 2019. They’re down 2.2% month over month for August, and early signs indicate that this trend could be accelerating into September.

00:15:08:21 – 00:15:31:08
Unknown
I think this is significant, and I can also corroborate this with what I was hearing from many clients at the SSA conference a couple of weeks ago. Operators are starting to lower prices earlier than they normally do this year and this phenomenon, combined with the accelerated pace of move outs, means that many tenants will be replaced by lower rent tenants, which will put a drag on revenue.

00:15:31:12 – 00:15:51:10
Unknown
This slide shows street rates by region, and here you can see that unfortunately no region is immune to this declining rate trend. What you can see is that rates in the South seem to be dropping a little bit faster than anywhere else. But the main point is it’s all declining. There’s a couple more trends worth noting as well.

00:15:52:00 – 00:16:22:09
Unknown
Changes to changes that Google made to its search algorithm, combined with rising CPC costs, have put upward pressure on marketing acquisition costs in general. In fact, the cost per click for our top related top storage related search terms has increased by 22% year over year for the month of August. Additionally, inventory is up 30% year over year, which is typically a very good indicator of operators starting to feel an occupancy squeeze.

00:16:23:06 – 00:16:48:10
Unknown
And then finally, the last major trend we’re seeing is a significant decline in storage operators buying more facilities. Presumably, this is due to the increased cost of capital and a disconnect between the seller and buyer price expectations. Whatever the case is, we’ve seen new facility adds to the store. While platform from M&A declined by more than 40% since our high in March of this year.

00:16:48:20 – 00:17:10:17
Unknown
All right. We talked through a lot of data there, but what does this all mean? So based on what we’re seeing in the economy and in our industry specifically, we have to still a few practical takeaways. The first is revenue pressure, declining occupancy and rental rates signal that many operators may see softening in terms of revenue in the short and medium term.

00:17:11:18 – 00:17:38:13
Unknown
The next is cost pressure with high labor and marketing acquisition costs. OpEx is likely to see upward pressure. Then the M&A slowdown with reduced access to capital and a higher cost of capital going through acquisitions will be harder. And finally, all this nets out to analyze pressure. All of this means that we anticipate seeing some degree of NOI pressure across the operators that we serve in the coming months and potentially years.

00:17:39:12 – 00:18:00:22
Unknown
Of course, this is not all doom and gloom. We’re still doing better as an industry than we ever had, and that’s fact. But things are changing, and it’s our goal to help you navigate this evolving landscape with the press. M&A activity, a significant amount of growth is going to have to come from same store operational improvements in terms of revenue or cost.

00:18:01:09 – 00:18:26:22
Unknown
And as a result, we believe that the operators who will be most successful in this environment are those who focus on efficiency based cost savings and creative ways to expand revenue per tenant. And this focus is now our number one priority at StoryCorps. Based on all of these factors, our team is taking steps to Orient our education and best practices content around three the three following areas.

00:18:27:12 – 00:18:50:09
Unknown
So the first is automation. We’re preparing best practices content to help you get more out of your technology tools to help operators reduce labor costs through technology based automation. Second is revenue per tenant opportunities. In the coming months, we’re going to be exposing new and innovative practices to grow revenue per tenant, even in an environment where there is pressure on rental rates.

00:18:51:02 – 00:19:10:05
Unknown
And the third is capital. We’re going to be providing insights in the realm of lending and capital to help you and your team exploit some of the opportunities that recent fintech innovations are bringing to the market. So these factors are going to really sit at the center of our content strategy for our unpacked resources in the months ahead.

00:19:10:13 – 00:19:29:04
Unknown
But we are doing much more than that. These factors are also informing our product investment approach for the coming year as well, and we’re going to be releasing a lot of new things that fall into these three buckets. So we’re excited to share how our innovations in each of these categories can help improve the performance of your operation, even as these headwinds emerge.

00:19:29:16 – 00:19:49:09
Unknown
So stay tuned for more in the coming weeks and months for all the great stuff we’re having for historical impact. All right. And with that, I’m going to hand it back over to you. Awesome. Thanks a lot, Jack. Super helpful. We actually did have a couple of questions come through that I thought might be because we’re a tiny bit ahead of schedule.

00:19:49:17 – 00:20:20:13
Unknown
It might be a good opportunity to dove into a few of those that. Awesome. All right. So actually, a number of questions come through around the occupancy and street rates. And I think you already voiced over a little bit of kind of what you what your interpretation of those things are. But, you know, as a veteran of the industry and somebody that has been at this for a long time, what’s it like to use a deeper read on on what that stuff means for for operators and how you’re thinking about that?

00:20:21:10 – 00:20:50:01
Unknown
Yeah. So I think my basic view is that occupancy is going to continue to come down. I do not think we’re going to go off a cliff here and there’s going to be millions of people moving out or anything like that. But I do think that this period of kind of absurd performance that we’ve experienced over the last two years is officially over and that we’re we’re marching into a period of time where it is going to be harder to fill up facilities, it’s going to be harder to get more customers.

00:20:50:01 – 00:21:21:07
Unknown
It’s going to be more expensive to get more customers. People are going to be more price sensitive. There’s going to be more price competition. I think that’s that’s what we have in front of us, honestly, right now. And the trends are just starting to show that. Yep. Yeah, that makes sense. Awesome. Another question, and I think some folks are getting a little bit ahead on this, which I think is great, but there are interested in if there’s a teaser for any of the innovations that we’re bringing to the market and in the areas that you’ve called out at the end.

00:21:22:08 – 00:22:05:23
Unknown
Sure. Well, I’ll give you a teaser on one of them, which is the capital side. We are going to be launching a storable capital product where basically you can, in a couple of clicks, get a loan that’s approximately equal to two times your monthly payments, receipts that you can use for any sort of business need. So whether that’s paying an insurance deductible, whether that’s buying a new gate system, repaving some part of the parking lot, whatever it might be, the whole idea is that instead of dealing with banks that are going to be increasingly hard to deal with in the coming months and years, and just generally hard to deal with, you can within the

00:22:05:23 – 00:22:24:14
Unknown
software in a couple of clicks, get a loan that’s anywhere in the kind of 15 to 100 grand range and be able to use that capital to improve your business. So that’s one of the really cool innovations that we’re going to be delivering here very shortly. Awesome. Awesome. Well, great. There is actually one more question. I’ll probably take this one, Chuck.

00:22:24:23 – 00:22:39:19
Unknown
Just for everyone’s awareness that several people asked if they’re going to be as there’s going to be a recording of this available, and there absolutely will be, we’re going to pull that together and share that out with you in a follow up email. You’ll get later today or Monday to figure that out, and you’ll still have it on hand.

00:22:39:19 – 00:23:03:01
Unknown
So if you need to share this with anyone else in your team, you’re welcome to do so. I encourage you to do so. So with that, Chuck, thank you so much for giving us that overview and all of your awesome thanks, Karen. All right. Great. All right. So if we just skip to the next slide, I wanted to give everyone a sense of kind of where we’re going from here.

00:23:03:01 – 00:23:26:19
Unknown
So today we just talked about what we’re tracking in the economy, what we’re tracking in our industry, and what we’re anticipating coming ahead. And so our big goal is to make sure we’re giving our our clients, giving the industry as much advance notice and trying to help them navigate what we’re anticipating coming up ahead. And so today, we’re trying to set the context for what we’re seeing in the economy, what’s what’s happening in terms of performance metrics in our industry.

00:23:26:19 – 00:23:43:14
Unknown
We’re starting to see that softening. So we’re going to be providing a lot more content out through our blog that you’ll see you’ll see that in the impact newsletter. To flesh that out and hear more about what I’ve talked about today. We’ll get you more to chew on there and more to dove deeper on each of the specific areas that we talked about.

00:23:43:19 – 00:24:04:14
Unknown
Help you and your team gets get smarter on these things so you can you can make more informed decisions. So that’s step one, right? So that’s understanding. So the economic uncertainty ahead. And we look forward to the next item. The other thing that we’re going to start to do and as we think about the webinar itself and so the other materials, we’re going to start to dove deeper in each of those three categories that you talked about.

00:24:04:22 – 00:24:33:11
Unknown
So the second item that he talked about was revenue protection. And so there are a number of ways that we know best practices that we’ve accumulated from working with over 30,000 storage operators. Our facilities in the in North America that we can help kind of curate. And we’re going to be putting together a spotlight and opportunity spotlight which will walk through what some of those are, some of the best ways that we see to help boost revenue per tenant, even with rental rates declining.

00:24:33:14 – 00:24:49:04
Unknown
So that’s going to be the next session that we go through our next webinar. We think that’s going to be one of the most impactful ones, and we want to put that 1/1. So that’ll be coming up next month and we’ll be sending out communications about that ahead of time so that you are prepared to, you know, carved out the time for it and ready to attend.

00:24:49:16 – 00:25:01:21
Unknown
So with that team, that’s all we had today. Thank you so much for coming. Thanks for your participation and thanks for your questions and we very much look forward to seeing you again next time. Have a great weekend and we’ll see you.